Download Global growth has slowed but country

Absa Investments
THE CHALLENGING ECONOMIC ENVIRONMENT
Craig Pheiffer
General Manager: Investments
Absa Asset Management Private Clients
Global growth has slowed but country outlooks differ:
 Least disruption from the crisis (slower growth but positive):
 China
 India
 Peripheral to crisis, commodity-assisted rebound, some policy normalisation:
 Russia
 Brazil
 Canada
 At the centre of the crisis, meagre recovery:






Germany
United States
United Kingdom
Italy
Spain
Japan
Source: Barclays Capital Global Economics Weekly (20 July 2012)
The strongest economies have
the most scope to provide
policy stimulus while the
weakest have the least.
The weakest economies have limited options:
Key Central Bank interest rates
UK
EU
US
JP
The market seeks more quantitative easing (“QE”) with interest rates near zero
but the impact of more QE in a weak demand environment is questionable.
Source: Barclays Capital Global Economics Weekly (20 July 2012)
United States
• Bernanke’s Senate testimony:
• “Risks to the growth outlook lie to the downside” - leaves the
bar to further policy easing low.
• “Frustratingly slow” progress on reducing unemployment rate.
• High probability of inflation < 2%.
• Fiscal concerns!
• Recent consumption data has been soft but there have been
encouraging signs on manufacturing for Q3.
• BarCap expectations:
• A better H2 as lower energy prices boost disposable incomes
and household consumption. QE3 still not the base case.
• Stickier core inflation once lower energy prices have worked
out of the system (plus higher rent payments).
• Advance reading of Q2 GDP on Friday expected at 1.5%.
Source: Barclays Capital Global Economics Weekly (20 July 2012)
Euro area
• European Financial Stability Facility has committed up to €100bn
to the Spanish government for recapitalising banks - Expectation
is that €70bn- €80bn will be required. Should be at a favourable
rate (±3.0%) with a favourable maturity.
• Spain commits to new fiscal targets set by the EC and other
macroeconomic conditions set by the IMF. Government appears
willing to accept these (VAT rate hike, dropping housing subsidies).
• Spain likely to need financial assistance in the bond market to
finance budget deficits. Expect a primary surplus in 2.5 years with
debt to GDP ratio peaking at 95% in 2015.
• Greece under the spotlight again with the troika visit - “Grexit” has the “horror” really faded?
• Euro area concerns to linger: stronger dollar, risk “off”.
Source: Barclays Capital Global Economics Weekly (20 July 2012)
United Kingdom
• MPC split on use and effectiveness of additional quantitative
easing (QE upped by £50bn to £375bn).
• Alternatives policies being introduced such as the “Funding for
Lending Scheme” (FLS) - likely to have limited effect in subdued
demand environment.
• Inflation has fallen but MPC looking through the inflation dip as a
temporary phenomenon. [BarCap sees near-term inflation
pressures well below target but inflation is expected to rise above
target by mid-2013]
• Expect Q2 GDP to have fallen by 0,2% q/q, a third consecutive
quarterly contraction in economic output.
Source: Barclays Capital Global Economics Weekly (20 July 2012)
Japan
• Real GDP expected to slow in FY2013 as government-led postearthquake reconstruction measures run their course.
• Bank of Japan sees inflation nearing price stability goal (of around
1%) in 2014 even without further fiscal stimulus. Any response to
calls for additional fiscal expansion could push prices higher.
• Bill to raise consumption tax (VAT) from 5% to 8% in April 2014
and 10% in October 2015 could push prices higher. BarCap expects
60% of any VAT rate increase to filter through to CPI.
Source: Barclays Capital Global Economics Weekly (20 July 2012)
China
• Latest GDP growth data was broadly in line with most officials’
expectations. Most officials agree that some further policy measures
may be required to stabilise economic growth at 7.5-8.5%. “Prudent”
to “expansionary”?
• Rapidly falling inflation from the 6.5% July 2012 high has opened the
way for more central bank action. More reserve ratio cuts expected
in H2 to stabilise liquidity + base interest rate cuts.
• Officials argue that Chinese economic growth cannot rely purely on:
• Public-led investment.
• Credit expansion.
• Liquidity injections.
• The government is trying to strike a balance between falling property
investment and surging housing prices. BarCap believes that some
relaxation of housing purchase restrictions at the local level is likely
to continue.
Source: Barclays Capital Global Economics Weekly (20 July 2012)
Growth (GDP) Outlook
Q/Q % Changes in GDP: DEVELOPED
2011
2012
2013
Q/Q
(saar %)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
US
0.4
1.3
1.8
3.0
1.9
1.5
2.0
2.5
1.5
2.0
2.5
2.5
Euro area
3.0
0.6
0.5
-1.3
0.1
-0.9
-0.1
0.4
0.9
1.4
1.6
1.5
UK
1.9
-0.4
2.4
-1.4
-1.3
-0.7
4.7
1.6
2.0
1.9
1.9
1.7
Japan
-7.7
-1.7
7.8
0.1
4.7
2.1
2.2
2.5
1.7
0.5
1.3
1.6
Y/Y % Changes in GDP: DEVELOPED
Y/Y % Changes in GDP: DEVELOPING
2010
2011
2012
2013
US
3.0
1.7
2.0
2.0
Euro area
1.8
1.5
-0.3
UK
1.8
0.8
Japan
4.1
DEVELOPED
Y/Y
WORLD
2010
2011
2012
2013
Brazil
7.5
2.7
2.2
4.6
0.8
Russia
4.0
4.3
4.3
4.0
0.2
2.1
India
8.9
7.5
6.2
7.3
-0.7
2.9
1.7
China
10.5
9.2
8.1
8.4
2010
2011
2012
2013
S Africa
2.8
3.1
2.6
3.5
5.0
3.8
3.4
3.9
DEVELOPING
Source: Barclays Capital Global Economics Weekly (20 July 2012)
The SARB’s South African outlook (July vs May 2012)
GDP
2012:
2013:
2014:
2.7% (2.9%)
3.8% (3.9%)
4.1% (4.1%)
2012:
2013:
2014:
5.6% (6.0%)
5.1% (5.5%)
5.1% (5.0%)
Inflation
Source: SARB MPC Policy Statement (19 July 2012)
and SARB Monetary Policy Review (29 May 2012)
Household consumption slowing? Manufacturing on the up?
• Real Retail Sales (%): 2004-2012
• Manufacturing (%): 2004-2012
May: 6.4% y/y
May: 4.2% y/y
Retail sales has been erratic due to
base effects but some evidence of
a slowing trend in consumption.
Recent manufacturing data has
been better than expected.
• Mining production (%): 2004-2012
May: 0.8% y/y
South African outlook
Quarterly data:
2011
%
2012
2013
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
GDP (q/q)
4.6
1.0
1.7
3.2
2.7
2.7
3.0
3.3
3.6
3.8
4.0
4.0
CPI (y/y)
3.9
4.6
5.4
6.1
6.1
5.8
5.7
5.7
5.6
5.6
5.5
5.3
CA Deficit : GDP
-2.6
-3.0
-4.1
-3.6
-4.9
-5.1
-5.1
-4.6
-4.6
-4.9
-5.2
-5.5
Repo rate
5.5
5.5
5.5
5.5
5.5
5.5
4.5
4.5
4.5
4.5
4.5
5.0
Y/Y % Changes in GDP:
Forecast:
GDP
(Y/Y)
2010
2011
2012
2013
2.8
3.1
2.6
3.5
Source: Barclays Capital Global Economics Weekly (20 July 2012)
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